Management Forecast Quality and Capital Investment Decisions

• 成果类型: Article
• 署名作者: Goodman, Theodore H.; Neamtiu, Monica; Shroff, Nemit; White, Hal D.
• 署名单位: Purdue University System; Purdue University; University of Arizona; Massachusetts Institute of Technology (MIT); University of Michigan System; University of Michigan
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-50575
• 发表日期: 2014
• 页码: 331-365
• 关键词: voluntary disclosure; earnings management; corporate-finance; takeover bids; BIDDING FIRMS; ceo turnover; BAD BIDDERS; acquisitions; INFORMATION; managerial

摘要

Corporate investment decisions require managers to forecast expected future cash flows from potential investments. Although these forecasts are a critical component of successful investing, they are not directly observable by external stakeholders. In this study, we investigate whether the quality of managers' externally reported earnings forecasts can be used to infer the quality of their corporate investment decisions. Relying on the intuition that managers draw on similar skills when generating external earnings forecasts and internal payoff forecasts for their investment decisions, we predict that managers with higher quality external earnings forecasts make better investment decisions. Consistent with our prediction, we find that forecasting quality is positively associated with the quality of both acquisition and capital expenditure decisions. Our evidence suggests that externally observed forecasting quality can be used to infer the quality of capital budgeting decisions within firms.